12 Ways to Avoid Getting Ripped Off at a Car Dealership

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DON'T GET TAKEN FOR A RIDE

Plenty of car dealers are honest salespeople who operate with integrity. Others see a big fat bullseye on your back the second you walk through the dealership doors. Dealers negotiate vehicle deals every single day, but you've done it once or twice -- or maybe never. Face it, they're probably better at negotiating than you. But if you know what to watch out for, you can avoid the most common pitfalls when buying a car.
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AVOID THE DISAPPEARING FINANCING ACT

After driving home in your new vehicle, you receive a call or letter from the dealer informing you that you're on-the-spot financing application has been rejected, and you now have to apply for a new loan at a higher rate. This is considered the "disappearing financing" act, and you can avoid this trap by securing outside financing before shopping.
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DON'T LET DEALERS RUSH YOU

When dealers sense hesitation, they'll sometimes try to force buyers off the fence by telling them that the deal they offered is only good for that day, or that another buyer is interested in the same car. This is their attempt to force you into an emotion-based decision. If you're not absolutely sure, be prepared to walk away and sleep on it. There are always more cars and other dealers.
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WATCH OUT FOR THE LOW CREDIT SCORE SCAM

It's no secret that borrowers with excellent credit get the lowest rates on the best loans. What many people don't know, however, is that unscrupulous dealers sometimes tell car buyers that their all-important credit score came back lower than it actually is. This means that the borrower pays a higher interest rate and misses out on lucrative dealer incentives. The solution is to check your credit score with all three bureaus before you go shopping so you know your bargaining power.
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DON'T PAY FOR DEALER PREP

"Dealer prep" is a fee commonly tagged onto itemized bills that unsuspecting buyers are prone to glancing over. Often $500 or $600, the fee supposedly compensates dealers for extra labor they put into securing your vehicle. In reality, it's a hidden add-on. Beat this scam by examining the purchase receipt and inquiring about every single charge before signing. Negotiate to have the fee reduced or removed entirely.
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DON'T ASSUME THE DEALER PAID OFF YOUR TRADE-IN LOAN

If you can, pay off your existing loan before you trade in your car. But if you must trade in a car that you owe money on, the balance of the first loan will be added to the loan on the car you're buying because the dealer is supposed to pay off whatever is owed on the trade in. Sometimes, however, they simply keep the extra money and never pay what's owed on the trade in. In the end, the bank loaned you the money for the vehicle and it's you -- not the shady dealer -- who is responsible for paying it.
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NEVER DISCUSS MONTHLY PAYMENTS

When dealers ask about a buyer's budget, they often do so in terms of monthly payments. Don't take the bait. When you quote a number, the dealer will find a way to work within your budget -- often by extending the term of the loan. You would pay nearly $10,000 more over the term of a seven-year loan than you would for a five-year loan, even though the monthly payment was $400 for the same car in both cases.
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ASSUME ADVERTISEMENTS DON'T APPLY TO YOU

Television is packed with car commercials promising juicy deals with 0% financing for a certain number of months. Those commercials come with blocks of tiny, fast-moving print explaining that the deal only applies to buyers with excellent credit who have huge down payments. When most customers get to the dealership, they often find that the same car comes with a far less attractive deal for them.
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DON'T GET BLINDED BY REBATES

Rebates are often used as incentives to buy. Those rebates come from the manufacturer and are applied no matter what price you pay for the car. When you're negotiating, do so as if the rebates don't exist. When it's time to convert the rebates into cash, ask to have them applied to the price of the car. If the dealer mails you a check, you'll have to pay interest and taxes.
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SKIP ON THE ADD-ONS

Dealers make big bucks by convincing unsuspecting buyers that extras are actually necessities. Called "add-ons," these upcharges are often completely unnecessary -- and almost always expenses. Say no to rust proofing, extended warranties, fabric protection and VIN etching.
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DON'T LEAVE A HOLD DEPOSIT

Sometimes dealers will tell buyers who are on the fence that they can hold the car for them as long as the prospective buyer leaves a deposit, which can be hundreds or thousands of dollars. In many cases, this happens before loan terms are agreed upon. If the buyer decides not to buy or doesn't like the terms, shady dealers will sometimes refuse to refund the deposit. The moral of the story? Never leave a hold deposit.
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AVOID GETTING ROPED INTO A LEASE

In some cases, when a buyer balks at the terms of the loan, the dealer will offer to lower the monthly payments with no money down if the buyer purchases right away. The trick is that the dealer switched from an outright purchase to a lease agreement -- sometimes without the buyer's knowledge.
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DON'T NEGOTIATE FROM MSRP

When you use the Manufacturer's Suggested Retail Price (MSRP) as a starting point for negotiations, you're vulnerable to dealers who will try to wow you by knocking off, say, $1,000. The problem is, the MSRP is artificially high. Ask about the dealer invoice -- the price the dealer paid for the car. Then, try to stay as close to that number as humanly possible.